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The manufacturer-retailer-consumer triad: Differing perceptions regarding price promotions

The manufacturer-retailer-consumer triad: Differing perceptions regarding price promotions

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The manufacturer-retailer-consumer triad: Differingperceptions regarding price promotions
Page Moreau
a,
*, Aradhna Krishna
b
, Bari Harlam
c
a
Southern Methodist University, Dallas, TX, USA
b
University of Michigan, Michigan, USA
c
CVS Pharmacy, USA
Received 18 December 1999; received in revised form 10 January 2001; accepted 24 August 2001
Abstract
The effectiveness of any promotional strategy depends, in part, on how accurately channelmembers predict consumers’ perceptions of their promotional activity. However, empirical researchon channel member predictions and their accuracy is virtually nonexistent. In this article we examinemanufacturer and retailer beliefs about consumers’ (and each others’) perceptions of sales promotionsand assess the accuracy of these predictions. Our findings indicate that manufacturers and retailershold similar, but equally inaccurate views of consumersindustry knowledge. When assessingconsumers’ specific beliefs about different types of promotions, these channel members underestimateconsumer knowledge. Their motivational knowledge, however, appears quite accurate –whetherpredicting consumer or other channel member perceptions of motivations. The similarity of supplierand retailer knowledge bodes well for channel efficiency, yet limitations in their understanding of consumer knowledge about promotions may lead to weakness in channel marketing strategies. © 2001by New York University. All rights reserved.
Keywords:
Promotions; Consumer knowledge; Prediction accuracy trade deals; Channel efficiency
1. Introduction
When making strategic decisions regarding price promotions, manufacturers andretailers rely on their expectations of consumer reactions to the promotions (Urbany,
* Corresponding author. Tel.:
1-214-768-3180.
 E-mail address:
pmoreau@mail.cox.smu.edu (P. Moreau).
Pergamon
Journal of Retailing 77 (2001) 547–569
0022-4359/01/$ – see front matter © 2001 by New York University. All rights reserved.PII: S0022-4359(01)00059-8
 
Dickson & Key, 1990). However, consumer reactions often depend on their beliefsabout channel member motives for offering the promotions. Given this inherent inter-dependence, the effectiveness of channel promotional strategy may depend on howaccurately channel members understand consumer perceptions of their promotionalactivity.For example, on seeing Heinz ketchup on sale at Kroger
s, a consumer may believethat the savings are provided by the manufacturer, potentially creating goodwill for thissupplier. Conversely, consumers may believe that Kroger
s is providing the savings. Thisperception may create goodwill for Kroger
s, but have little effect on Heinz brand equity.When deciding whether to reinforce or modify their promotional strategy, Kroger
s andHeinz may bene
t from an accurate understanding of the perceptions held by theirconsumers.Similarly, Heinz may believe that consumers think that the price cuts on its brands areoffered to encourage the purchase of the Heinz brand. Consumers, however, may actuallythink that the price cuts are offered to get rid of excess inventory. If consumers make thislatter inference, price promotions may not be an optimal strategy for encouraging sales of apopular brand because of the potential for damage to brand equity.An accurate understanding of consumer inferences related to store brands could alsoin
uence the promotional mix strategies employed by retailers and manufacturers. Forexample, the majority of consumers may believe that national manufacturers produce storebrands. If retailers incorrectly believe that consumers think that retailers makes their ownstore brands, then the retailers may not price or promote their labels effectively, charging alower price than consumers are willing to pay.These examples highlight the importance of understanding consumers
perceptions of retailer and manufacturer pricing strategies. These are policies that (Friestad & Wright, 1994)call
persuasion knowledge.
However, empirical research documenting the beliefs that chan-nel members use when developing their own goals and tactics is
virtually nonexistent 
(Friestad & Wright, 1994). While some prior empirical research has focused on the contentof consumers
persuasion knowledge (Dickson & Sawyer, 1986; Krishna, Currim & Shoe-maker, 1991; Raghubir, 1994; Raghubir & Corfman 1994), little work has focused onchannel member
predictions
of this knowledge. A frame for these two forms of knowledgeis set forth in Fig. 1.In this article we examine manufacturer and retailer beliefs about consumers
(andeach others
) perceptions of sales promotions and assess the accuracy of these predic-tions. Speci
cally, this research is designed to 1) assess the content of consumer andchannel member persuasion knowledge of sales promotions and 2) examine the accuracyof manufacturers
and retailers
predictions of consumers
and each others
persuasionknowledge (see Fig. 2). In this
gure, the arrows represent the agents
predictions of targets
persuasion knowledge, with the arrows pointing from the agents toward thetargets.Note that our focus is on the degree of consistency between manufacturer and retailerbeliefs about consumer perceptions and consumers
actual perceptions. We do not examine
why
these inconsistencies exist.
548
P. Moreau et al. / Journal of Retailing 77 (2001) 547–569
 
2. Conceptual framework
We
rst elaborate on Fig. 2 by discussing relationship scenarios for the Manufacturer-Retailer-Consumer triad. Next, we discuss the types of knowledge that we study.
2.1. Relationship scenarios for the manufacturer-retailer-consumer triad 
How do manufacturers and retailers predict consumer interpretations of their own pro-motional behavior? According to the literature on social prediction, people base theirpredictions on a number of available cues relevant to the target (Kahneman & Tversky, 1973;Nisbett et al., 1976; Nisbett & Ross, 1980; Taylor, 1982; Tversky & Kahneman, 1974). In
Fig. 1. The importance of understanding consumers
persuasion knowledge.549
P. Moreau et al. / Journal of Retailing 77 (2001) 547 
 –
569

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